Islamic Republic of Afghanistan Added to the List of Countries Eligible for Assistance Under the HIPC Initiative

The World Bank and the International Monetary Fund (IMF) have deemed the Islamic Republic of Afghanistan eligible for assistance under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative based on a preliminary assessment.

To start benefiting from debt relief at the HIPC decision point, Afghanistan will need to take the following actions:

• continue the satisfactory performance under the program supported by the IMF's Poverty Reduction and Growth Facility;

• work toward regularizing its relations with creditors; and

• reach an understanding with the World Bank and IMF on a set of specific reforms to be implemented to benefit from irrevocable debt relief.

Following the IMF Executive Board discussion on April 11, Murilo Portugal, Deputy Managing Director and Acting Chair, said: "Afghanistan has achieved strong and continued progress toward macroeconomic stability over the last few years, despite the difficult security environment. At the same time, wide-ranging structural reforms have been put in place. Notwithstanding the mid-2006 Paris Club agreement, the external debt situation remains difficult. It will be important for Afghanistan to conclude an agreement on clearing its arrears to the OPEC Fund for International Development and to open negotiations with non-Paris Club bilateral creditors. The pursuit of macroeconomic reforms, prudent debt management, and continued donor support on highly concessional terms will be needed to restore sustainability over the medium-term. In this context, completion point triggers should include reforms in the areas of public financial management, external debt management, and public expenditure policy."

Alastair McKechnie, the World Bank Country Director for Afghanistan welcomed the World Bank Board's decision on Afghanistan's HIPC eligibility: "We hope that with this planned debt relief one more burdening issue from Afghanistan's past will come to a close. As the initiative moves ahead it should help Afghanistan remain on track with its ambitious development program."

The HIPC Initiative

In 1996, the World Bank and IMF launched the HIPC Initiative to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world's poorest and most heavily indebted countries, and thereby reduce the constraints on economic growth and poverty reduction imposed by the debt-service burdens in these countries. The Initiative was modified in 1999 to provide three key enhancements:

Deeper and Broader Relief. External debt thresholds were lowered from the original framework. As a result, more countries have become eligible for debt relief and some countries have become eligible for greater relief;

Faster Relief. A number of creditors began to provide interim debt relief immediately at the "decision point." Also, the new framework permitted countries to reach the "completion point" faster; and

Stronger Link Between Debt Relief and Poverty Reduction. Freed resources were to be used to support poverty reduction strategies developed by national governments through a broad consultative process.

To date, 30 countries have reached their decision points under the enhanced HIPC initiative, of which 22 have reached completion point.